And the pendulum continues to swing

The trade tension between China and the USA is gearing up on the daily basis. Recently United States announced that it will implement a 10% duty on all the ferroalloys imported from China. Despite the fact that China is a minor player in the US market, the news immediately created negative sentiment within ferroalloys industry in China and worldwide. Currently analysts expect the August tenders to drop to the levels of June Tender Prices.

This once again proves, that like European Quarterly Benchmark, China Tender Prices does not have a value of a true market indicator but rather reflect the speculative sentiments at the moment of settlement. Both suffer from the same issues such as no transparency to the deals, are rarely based on the actual supply/demand and could move for 10% and more in one go with no big change in the background market conditions.

The same case applies here, because the news of 10% duty and other trade tensions news completely overshadowed that China started another stimulus program, thus possibly offsetting negative impact from Trade War.

Over last week China has done the following:

  • Cut its 7-day Treasury rate by 103bps

  • Launched quasi QE

  • Told banks to flood the system with liquidity

  • Sent the Yuan tumbling

  • Warned more easing is coming

  • Provided and additional tax cut of 65 billion RMB (9.6 billion USD) to companies with R&D expenditure

  • Expedited non-budgeted special bond sales to assist local government infrastructure financing

  • Eased restrictions on banks’ issuance of financial bonds for small firms

Combined with the recent data on chromium ore imports, stocks and ferrochrome production, these measures should be looked upon for pricing clarity.

Chromium ore stocks are now over 3 million tonnes, which represents about 2.5-3 months’ worth of production, the highest level seen from 2011. Ferrochrome production for H1 2018 is about 10% higher than H1 2017 and 25% higher than H1 2016. This shows that demand in China is still growing, and the new stimulus package should help settle the domestic demand at even higher level.

Additional upside comes from India, where due to severe rains and floods in Odisha state has caused delays in chromium ore mining and ferrochrome production. This coupled with all India truckers strike, even further complicated delivery of raw materials and finished goods from mines and plants. India is one of the largest suppliers of HC FeCr to China, in 2017 it accounted for 12% of total imports, while in 2018 it accounted for about 10%. The issues India is facing wont last forever, but it should help keep the market in China more balanced, until the impact of simulus will come into effect.

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